ISDA derivative definition changes to take effect March 2014

Changes include new credit event trigger

The biggest revision to credit- derivatives contracts in four years will take effect on March 20, according to the International Swaps and Derivatives Association.

The contracts, which are governed by ISDA, include a new credit event trigger for government-initiated forced losses and the addition of delivery of assets for a sovereign reference entity, according to a document the New York-based trade group posted on its website today. The Dutch government’s expropriation of SNS Reaal NV’s bonds this year exposed investors to losses, fueling concern that swaps offered inadequate protection.

The committee is considering the changes after Greece’s debt restructuring posed the biggest test for the $25 trillion credit-default swaps market since banks including JPMorgan Chase & Co. created it more than a decade ago. ISDA last overhauled the derivatives in 2009 in the so-called Big Bang and Small Bang protocols that created a new set of standards to increase transparency and confidence in the market.